How a market system works; including buyers, sellers, allocation of scarce resources, market equilibrium, and market disequilibrium. Establishing that the economic problem creates three key questions about determining resource allocation – what to produce, how, and for whom. How the price mechanism provides answers to these key allocation questions.

Definitions, drawing and interpretation of appropriate diagrams showing the effects of three government microeconomic policy measures: maximum and minimum prices in product, labour and foreign exchange markets; indirect taxation; and subsidies.